Here’s why ComfortDelGro remains alluring despite its low earnings outlook

SMRT's NRFF will serve as reference to SBS Transit.

Despite bleak expectations for ComfortDelGro’s (CDG) income, analysts are bullish on the transport company’s prospects under the New Rail Financing Framework (NRFF).

According to a report by OCBC, SMRT’s recently announced NRFF serves as a good reference point on how the NRFF for SBS Transit’s—which is 75% owned by CDG—Northeast Line (NEL) and Sengkang-Punggol LRT (SPLRT) may be structured.

Moreover, CDG also operates the Downtown Line (DTL), which is already under the NRFF.

“Using SMRT’s NRFF as a reference, we assumed: 1) CDG’s NEL and DTL to have their EBIT margins (fare and non-fare) capped to 5% as well, and 2) LTA to structure payment for CDG’s bus assets similarly, through progressive payments over five years, which matches the license term of the new bus government contracting model,” OCBC notes.

OCBC also estimates DTL will only break even from 2H17, and NEL to transit to NRFF only from FY18.